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Tax Efficiency and Cash Flow Comparison Illustration

"Business Owner" Benefit Plan 
Concept Overview And Illustrations

The Restricted Property Trust (RPT) is a vehicle for successful business owners to mitigate income taxes and appreciate assets. This plan offers considerable Pre- Tax Contributions, Tax Deferred Growth, and Tax Advantaged Distributions.

What is a Restricted Property Trust (RPT)? What are the objectives of an RPT?

The RPT is an employer-sponsored plan for owners and/or key executives. The primary objective of an RPT is to provide tax-favored long-term cash accumulation and income distribution in a conservative vehicle. An RPT can provide better results than an alternate investment earning 7%.

What are the tax characteristics of an RPT?

Each annual contribution is fully deductible by the employer and only partially taxable to the participant. Asset growth is in the cash value of a life insurance policy and is, therefore, tax-deferred. The policy is distributed to the participant at plan termination, at which time a portion of the cash value is taxable.

How does an RPT achieve these results?

Fully tax-deductible contributions are made by the business to an RPT for a select group of participants. Of this, a portion is considered current taxable income to the participant. The remaining contribution funds the life insurance and is not considered taxable income to the participant.

The RPT tax treatment depends on two things: the provisions of the life insurance contract and the provisions of the trust. One key trust provision is that the employer must make the selected annual contribution each year for the restricted period. Failure to make the annual contribution causes both the policy to lapse and the surrender proceeds to be given to a preselected charity. This creates a critical “risk of forfeiture.” After the policy is distributed, the participant can maintain it for the death benefit, use it to generate non-taxable cash flow, exchange it for a larger income stream (annuity) or potentially exchange it for a larger, guaranteed death benefit.

Who can participate in an RPT? Are there limits on participation?

This plan is available to anyone with earned income, whether from an S- Corp, partnership, or other business entity. An RPT is not a Qualified Plan, so participant limits and tests do not apply, and contributions to an RPT do not impact any Qualified Plan contributions. Each participant in an RPT can select their own level of contribution regardless of what other participants contribute.

Summary: Male, Age 50, Preferred Non-Tobacco

$100,000 Contribution to Restricted Property Trust

  • Deductible Contribution from Business
  • 10 Year Plan; 5 year Commitment at a time
  • $700,000 Total Net Deductible Contributions

$2,789,956 Initial Policy Death Benefit

  • Payable to Participant’s Chosen Beneficiary
  • Increases to $3,819,658 by end of year 10
  • $1,630,972 (if) RPU after Distribution, Net of Tax

Supplemental Income: (Flexible and Optional)

  • Illustrated from age 66-85 (20 years)
  • $1,680,300 of Supplemental Income Illustrated
  • Income Tax Free

Residual Benefit to Age 100

  • $132,984 Income Tax Free Death Benefit
  • $45,316 Policy Cash Value

Immediate Tax Efficiency

  • Tax rate during Plan Participation 15.0% vs. 45.0%
  • $300,248 Net tax savings during Plan Participation
  • $100,000 Annual Deduction for Business
  • $30,000 Taxable to Participant under 83(b) Election
  • $2,371 Initial Taxable Economic Benefit to Participant
  • $4,185 Final Year Taxable Economic Benefit to Participant

Restricted Property Trust:
Cash Flow Comparison

Whole Life Insurance in Restricted Property Trust versus a 7% Taxable Investment at 45% Tax Rate Pre-Tax Equivalent of $124,545

Work With Noble Wealth Solutions

With over 30 years of experience in business and estate planning, Ben Levine is a leading expert in executive benefit planning and tax-advantaged strategies. As a Principal at First Financial Resources (FFR), Ben provides access to exclusive financial structures designed specifically for high-income business owners and professionals.

If you're ready to reduce taxes, build wealth, and secure your financial future, let’s start the conversation.

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